Technology is constantly improving and evolving. Do you know what benefits a 15% faster line could bring? Are you being drawn into returnable packaging? Are consumers demanding fresher products?
The primary scale economies in a manufacturing facility come from Process or Packaging scale - with factory fixed cost economies contributing relatively little.
Aggregating production volumes can be necessary to unlock significant process scale benefits. However, some processes (especially the more modern ones) tend to be on relatively short development lifecycles themselves - and more mature ones may be supporting declining products.
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Technologies such as Aseptic Packaging or Bottle Blowing were initially developing so rapidly that a 5 year development cycle assumption would be reasonable. This becomes significant when making 10 year projections:
- How long are packaging technology life cycles?
- Where are the current packaging technologies in their life cycle?
- Are there technologies which may undermine incumbent products?
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Projecting manufacturing costs over the next decade, on the basis that existing product technologies will continue to prevail, is fraught with danger.
Inevitably if we combine the assumption that today's technologies will continue, with the inherent marketing optimism of future growth expectations, we will be drawn into an investment projection predicated on big scale, low manning, high efficiency facilities.
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These facilities give massive competitive advantage in a stable environment, but can equally be a millstone around the neck when product technology lifecycles start to bite.
These are hard questions to answer - but we must look critically at:
- Where are the current product technologies in their life cycle?
- Are there technologies which may undermine incumbent products?
Scenario testing and risk analysis should form a part of dealing with this critical uncertainty.
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